SBA Policy Notice

Changes to the Franchise Review Process for 7(a) and 504 Loans

SBA has received numerous comments relating to the language in the SBA Addendum, particularly the use of the terms “franchise agreement,” “franchisor,” and “franchisee,” when the document is also required for license, dealer, distributor, jobber, or similar agreements. SBA also identified other issues that needed clarification, including the language discussing covenants and employment. The following changes have been made to the SBA Addendum to clarify SBA’s intent:

Customizing the Agreement

a) The SBA Addendum now includes a drop down box to allow the entity to select the appropriate type of agreement (e.g., franchise, license, jobber), and the proper titles of the parties to the agreement (e.g., franchisor/franchisee, licensor/licensee). The SBA Addendum will also allow the manual entry of other types of agreements (e.g., member agreements), or to fill in a specific name of an entity, rather than “franchisor.”

Covenants

b) The language under the heading “Covenants” has been clarified to address any restrictions that may already be recorded against the franchisee’s real estate. Any such restriction must be removed from the title in order for the Franchisee to obtain SBA-assisted financing.

Employment

c) The language under the heading “Employment” has been revised to clarify that for temporary personnel franchises, the temporary employees will be employed by the Franchisee not the Franchisor.

Termination language

d) The language regarding termination of the SBA Addendum has been clarified.

Signing authorization

e) The signature blocks have been revised to include language stating the persons signing the SBA Addendum are authorized to do so.